R.M. Lodha, J.
1. This appeal arises out of an arbitration proceeding. The Arbitrators nominated by the parties could not give consensual decision; they differed and thereupon reference was entered before the Umpire. The Umpire gave his award on 27-6-1995 in favour of the present appellants (For short, 'Sumitomo') accepting their claim directing the respondents (For short, 'ONGC) to pay Sumitomo a sum of Japanese Yen 129,764,463 together with interest at an annual rate of 4.50% from 15-5-1991 to the date of the award with costs and other ancillary direction. Upon the said award dated 27-6-1995 having been challenged in arbitration petition, the learned Single Judge by his judgment dated 29-11-1999 set aside the award passed by the Umpire and allowed the arbitration petition giving rise to the present appeal.
2. Sans unnecessary details the brief facts necessary for the disposal of this appeal may be stated first. ONGC is a company incorporated in accordance with the provisions of the Companies Act, 1956 having its registered office at Tel Bhavan, Dehradun (India). Sumitomo is a company incorporated in accordance with the Laws of Japan having its registered office at 6-1, Olemachi, 2-Onome, Chixodasku, Tokyo-100, Japan. By an agreement dated 7-9-1983 entered into between ONGC and Sumitomo, Sumitomo was given contract to install and commission on a turnkey basis SH Phase II of a Platform at the site of ONGC known as Bombay High South for their Site about 100 miles north-west of Bombay ('the SH Complex') on SHI well-cum-production platform Bench; two, two Flare Tripods and Flare Bridges one SBM system and some interconnecting submarine pipelines. Under, the agreement installation and commissioning of the works was to include and cover detailed design and engineering, procurement, fabrication, inspection, testing and pre-commissioning, load-out, sea fastening, tow-out, installation of offshore site and commissioning and other work necessary for the final completion of the works. On 11-4-1984 ONGC certified Sumitomo had completed the Phase II. A discharge certificate was also issued on 18-5-1985. It appears that under the terms of the agreement it was open to Sumitomo to engage the services of the subcontractor and accordingly subcontract is said to have been entered into between Sumitomo and McDermott International Inc (For short, 'MII'). Section 44BB of the Income Tax Act was introduced on 19-5-1987 with retrospective effect from 1-4-1983. A circular by Income Tax Authorities in the month of July 1987 was issued in respect of turnkey projects of foreign contractors engaged in the business of exploitation of oil and natural gas in India. The concerned assessing authority, in the year 1988, served notices on MII for re-opening the assessments already made for the assessment years 1984-85 and 1985-86. In the view of the Income Tax Authorities, MII (subcontractor) was liable to pay income tax and accordingly passed revised assessment orders. MII preferred appeals against the said assessment orders which were rejected. Aggrieved thereby MII preferred appeals before the Income Tax Tribunal which are said to be pending. Sumitomo's case is that by letter dated 26-10-1989 MII called upon them to reimburse the amounts paid by them by way of income tax for the assessment years 1984-85 and 1985-86. On the basis of the said demand raised by MII, negotiations took place between the Sumitomo and MII and as a result of settlement, Sumitomo made total payment of US $ 1,112,447.84 to the subcontractor MII by way of reimbursement of the income tax paid by the subcontractor. Sumitomo claimed the said amount from ONGC but since it was not accepted, on 6-3-1991 served notice of arbitration through their solicitors on ONGC and made request for arbitration to the International Chamber of Commerce (ICC). In the said notice Sumitomo notified their intention to appoint Mr. Robert A. Mac Crindle as their arbitrator. ONGC, in response thereto, appointed Mr. Justice D.M. Chandrasekhar (Retd.) as the arbitrator. The arbitrators nominated by the parties appointed Sir Michael Kerr (Former Lord Justice of Appeal) as Umpire. Unnecessary it is to give here the details of the proceedings adopted by the parties in India and England between January 1992 and July 1993. Suffice, however, to say that in the month of March 1994, the hearing of the arbitration before the two arbitrators (For short, Tribunal' nominated by the parties) began and was concluded in the month of July 1994. Following the conclusion of the hearing, Justice D. M. Chandrasekhar by his statement of reasons rejected Sumitomo's claim, while Mr. Mac Crindle on 18-7-1994 issued reasons making an award in favour of Sumitomo. The arbitrators immediately thereafter issued a joint notice of dis-agreement and thereupon reference was entered before the Umpire. The Umpire, after hearing the parties, by his award dated 27-6-1995 agreed with the view of Mr. Mac Crindle and directed ONGC to pay to Sumitomo the sum of Japanese Yen 129,764,463 together with interest at 4.50% from 15-5-1991 to the date of the award. The operative portion of the award reads thus:
'(1) The respondents ONGC must pay to the Claimants SHI on demand the sum of Japanese Yen 129,764,463 together with interest at an annual rate of 4.50% from 15 May 1991 to the date of this Award.
(2) It is hereby declared that in the event that the Claimants become liable to pay, and do pay, further sums to MII hereafter due to any assessment to income tax on MII under the present Subcontract pursuant to Section 44BB of the Income Tax Act, 1961, then the respondents must indemnify the Claimants against any such payment on demand; and, conversely, the Claimants must pay to the respondents the amount of any further refund which may hereafter be received beyond that referred to in paragraph 4.17 above.
(3) The respondents must pay to the Claimants all the Claimants' costs of this arbitration, to be taxed in default of agreement, on demand.
(4) Finally, the respondents must pay my fees and expenses, and the fees and expenses of Mr. Mac Crindle QC and Mr. Chandrashekhar, the original Tribunal as well as the other costs of this arbitration, such as the hire of rooms, the provision of transcripts, etc. In the event that the Claimants have already paid any sums on account of such fees, expenses or costs, then all such sums must be refunded by the respondents to the Claimants on demand.'
3. Upset by the aforesaid award dated 27-6-1995, ONGC, as stated above filed arbitration petition before this Court challenging the award passed by the Umpire on diverse grounds under Section 30 of the Indian Arbitration Act, 1940 (For short, 'Act of 1940'). The learned Single Judge, after hearing the parties, by his judgment dated 29-11-1999 held that the reasoning given by the Umpire in paragraph 6.7 of the award showed total non-application of mind and that Umpire was not at all justified in holding that ONGC was liable for reimbursement of the amount paid by Sumitomo to its subcontractor - MII towards income tax. The learned Single Judge held that parties had not submitted specifically any clause in the agreement for interpretation and for award to the arbitrators and, therefore, it cannot be said that the award passed by the Umpire was binding and final. In view of the learned Single Judge, for examining the claim of Sumitomo it became necessary for the Umpire to construe various clauses in the agreement and, therefore, it cannot be said that the question of interpretation of clause in the agreement was specifically referred and that the Court would be entitled to examine the correctness or otherwise of the decision of the Umpire on construction of Clause 17.3 of the agreement between the parties. According to the learned Single Judge the construction put by the learned Umpire on terms of Clause 17.3 of the agreement between the parties was clearly in ignorance of the plain language of Clause 17.3 and that the said view was impossible and, therefore, could be interfered. As regards the question whether the revised assessment done in the case of subcontractor was referable to Section 44BB of the Indian Income Tax Act, the learned Single Judge though held that there was some room to assume that the award made by the learned Umpire in relation to applicability of Section 44BB was not entirely right, but he observed that the conclusion reached by the learned Umpire on this aspect cannot be termed as impossible conclusion and, therefore, in his opinion, he was not justified in interfering with the conclusion reached by the learned Umpire. The learned Single Judge also overruled the challenge to the award on the ground of violation of the principles of natural justice. However, since the learned Single Judge held that there was total non-application of mind by the Umpire on the question of construction of Clause 17.3 and that the construction put by the learned Umpire on the terms of Clause 17.3 of the agreement was impossible, he set aside the award. The said judgment of the learned Single Judge passed on 29-11-1999 is under challenge in this appeal at the instance of Sumitomo. We may note here that aggrieved by the findings recorded by the learned Single Judge on two aspects viz. (i) applicability of Section 44BB to the revised assessments of MII for the assessment years 1984-85 and 1985-86 and (ii) violation of principle of natural justice by the Umpire, ONGC has preferred Cross appeal No. 2/2000. As, we entertained serious doubts about the maintainability of the said appeal only challenging the findings to the extent these were given against ONGC, Mr. Banerji, the learned senior counsel submitted that even if the said appeal is not maintainable, it is open to ONGC to challenge the said findings in defending the judgment delivered by the learned Single Judge. He, however, during the course of oral arguments only disputed the correctness of the finding recorded by the learned Single Judge to the extent he upheld the view of Umpire being not impossible view, regarding applicability of Section 44BB of Income Tax Act to the revised assessments of MII and category abandoned challenge to the finding of the learned Single Judge on the issue of violation of principle of natural justice. We shall, accordingly, deal with the challenge to the correctness of the finding recorded by the learned Single Judge in respect of applicability of Section 44BB at an appropriate stage in this appeal itself.
4. Mr. Virendra V. Tulzapurkar, the learned senior counsel appearing for Sumitomo, assailed the judgment passed by the learned Single Judge on the following grounds:--
(i) The claim of Sumitomo was based purely on interpretation of a clause in a contract which was a question of law and it was specifically referred to the Umpire and in view thereof the decision of the Umpire, whether right or wrong, could not be interfered with by the Court under Section 30 of the Act of 1940;
(ii) Sumitomo's claim depended on the interpretation of the clauses of the contract and, therefore, as regards the challenge to the decision of the Umpire, the same stood on the same footing as an issue of law specifically referred to the Umpire and hence beyond the purview of challenge under Section 30 of the Act of 1940.
In support of the aforesaid contentions, Mr. Tulzapurkar, the learned senior counsel relied upon Kapoor Nilokheri Co-op. Dairy farm Society Ltd. v. Union of India and Ors., : AIR1973SC1338 , Tarapore and company v. Cochin Shipyard Ltd., Cochin and Anr., : [1984]3SCR118 , U.P. Hotels etc. v. U.P. State Electricity Board, : AIR1989SC268 and judgment of division bench of this Court in Appeal No. 403/1992, Sterling Wilson Electricals Private Limited v. Reserve Bank of India delivered on 9/10-8-1994;
(iii) In any event there was no erroneous proposition of law on the face of the award and, therefore, the court could not interfere with the award, and
(iv) The construction placed on Clause 17.3 of the agreement by the Umpire was a possible construction and not an impossible one. According to Mr. Tulzapurkar, the Court could not substitute its own view and set aside the award as being contrary to its own view.
He relied in support of his contentions (iii) and (iv) upon Food Corporation of India v. Joginderpal Mohinderpal and Anr. : AIR1989SC1263 , T. P. George v. State of Kerala and Anr., (2001) 2 SCC 758, Arosan Enterprises Ltd. v. Union of India and Anr., : AIR1999SC3804 and the judgment of the learned Single Judge delivered on 15-7-1994 in Arbitration Petition No. 41/1994, Mazgaon Dock Ltd. v. McDermott International Inc.
5. In opposition Mr. MIIon K. Banerji, the learned senior counsel appearing for ONGC strenuously urged that the learned Single Judge did not commit any error in holding that there was no specific question of law referred as a question of law to the arbitrators or the Umpire. According to the learned senior counsel, a bare perusal of the claim, the notice of arbitration and the Umpire's award leaves no manner of doubt that parties at no point of time desired a decision by the arbitrators or the Umpire on a specific question of law. Mr. Banerji, the learned senior counsel, submitted that the Umpire exceeded his jurisdiction by awarding claim for which there was no provision in the contract and misdirected himself by disregarding the bounds of the contract and by awarding claims which were opposed to the provisions of the contract and rather in the face of the provisions to the contrary. The learned senior counsel in this regard referred to several clauses in the contract, particularly Clauses 3.2, 8.6, 13.2.7, 13.3 (13.3.4), 17.3, 23 and 27. Mr. Banerji, the learned senior counsel, urged that in the absence of express provision in the contract for payment to the subcontractors, the learned Single Judge rightly held that there would be no liability on ONGC and the Umpire was not justified in holding ONGC liable for the amount paid by Sumitomo to its subcontractor-MII. He referred to the observations of the learned Single Judge that there has to be direct nexus between the provisions of Clause 17.3 and that the liability for payment was a voluntary act and the Sumitomo was free not to take on its own liability. It was contended by Mr. Banerji that there are several errors on the face of the award inasmuch as the reasoning and the line of interpretation of the Umpire is erroneous and the errors of law have been committed both with regard to the terms of the contract as well as the provisions of the Income Tax Act and the various principles of interpretation of contract have been flouted. In this regard, he referred to various paragraphs of the award to demonstrate the errors on the face of the award. Mr. Banerji thus submitted that the learned Single Judge cannot be said to have erred in interfering with the award passed by the Umpire. In support of his contentions, he relied upon Dawsons Bank Ltd. v. Nippon Menkwa Kabushihi Kaish, Japan Trading Co. Ltd. , F.R. Absalom, Limited v. Great Western (London) Garden Village Society, Limited, 1933 Appeal Cases 592, Thawardas v. Union of India, : [1955]2SCR48 . Union of India v. A. L Rallia Ram, : [1964]3SCR164 and Alopi Parshad and Sons. Ltd. v. Union of India, : [1960]2SCR793 , The learned senior counsel also referred to various judgments of the Apex Court laying down the principles and well recognised grounds for setting aside the award, in particular: Indu Engineering and Textiles Ltd. v. Delhi Development Authority, : [2001]3SCR916 , The Associated Engineering Co. v. Government of Andhra Pradesh, : [1991]2SCR924 , Chahal Engg. and Construction Co. v. Irrigation Department, Punjab, : AIR1993SC2541 , Trustee of the Post of Madras v. Engineering Construction Corporation Ltd., : AIR1995SC2423 , State of U.P. v. Ramnath International Construction (P) Ltd., : AIR1996SC782 , New India Civil Erectors (P) Ltd. v. Oil and Natural Gas Corporation, : [1997]2SCR86 , Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises' Anr., : AIR1999SC3627 , ONGC v. Pure Helium India, : (2000)3BOMLR870 and Chiranjilal Srilal Goenka (dead) by LRs v. Jasjit Singh and Ors., (2001) 1 SCC 486.
The learned senior counsel for ONGC while challenging the finding recorded by the learned Single Judge that view of Umpire in respect of applicability of provisions of Section 44BB to the revised assessment of subcontractor-MII was not impossible submitted that the learned Single Judge having held that there is an element of sale and that the revised assessment of sub-contractor-MII did show that it could not be an assessment under the provisions of Section 44BB of Income Tax Act and that there was room to assume that the award by the learned arbitrator was not entirely right, ought to have concluded that the conclusion reached by the Umpire regarding applicability of Section 44BB was not possible conclusion. The learned senior counsel in that regard also urged that the learned Single Judge failed to appreciate the gross error committed by the Umpire in confusing the language of Section 44BB (10% of the gross amount paid or payable in and out of India) with the concept of income accruing and arising in India in Sections 5 and 9 and upholding 11% tax which is contrary to the specific language of Section 44BB which provides for 10% of tax of the gross amount paid or payable in and out of India. According to Mr. Banerji Umpire's attempt to supplement the charging Section 44BB by altering the formula and by adding 1% as a rough and ready measure was contrary to all legal and taxing principles. The contention of the learned senior counsel was that the revised assessment of MII-sub-contractor was under circular of July 1987 after the option was exercised by MII as it was suited to them and, therefore, it was not a case of mandatory assessment under Section 44BB. Thus, it was argued by the learned senior counsel that the award passed by the Umpire also deserves to be set aside on the ground that the Umpire had committed gross error in holding that revised assessment of sub-contractor-MII was done under Section 44BB.
6. In rejoinder Mr. Tulzapurkar, the learned senior counsel for Sumitomo rebutting the contention of Mr. Banerji that award being contrary to various terms of the contract and, therefore, jurisdictional error was committed by the Umpire, argued that ground of jurisdictional error being separate and distinct ground in challenging the award cannot be allowed to be raised for the first time in appeal. According to Mr. Tulzapurkar this ground was neither specifically set up in arbitration petition nor specifically argued before the learned Single Judge. As regards the challenge to the finding recorded by the learned Single Judge that the view taken by the Umpire about the revised assessment of sub-contractor-MII, under Section 44BB was not an impossible view. Mr. Tulzapurkar submitted that the Umpire thought it fit to not to sit as an Appellate Authority over the assessments made by the competent authorities under Income Tax Act and rightly so since the appeals are pending before the Tribunal and, therefore, it cannot be said that the view taken by the Umpire was not possible view.
7. The legal position about the grounds for interference under Section 30 of the Act of 1940 in the award are well recognised. Section 30 provides in somewhat mandatory terms that an award would not be set aside except on one or more of the grounds enumerated in the provision. The scope for interference by the Court with an award passed by the arbitrator is undoubtedly limited and the Apex Court and the High Courts have time and again emphasised the limitations on exercise of jurisdiction by the Court for setting aside or interfering with the award. Though, good number of authorities are available on this point and quite a few were cited at bar about the scope of interference in the award by the Court under Sections 30 and 33 of the Act of 1940, we feel it unnecessary to refer to all the authorities cited at bar. In our view, reference to two decisions of the Apex Court viz., Rajasthan State Mines and Minerals Ltd. and Indu Engineering and Textile Ltd. will suffice. In Rajasthan State Mines and Minerals Ltd. the Apex Court in the light of the statutory provisions of Sections 30 and 33 stated thus :
'(1) It is not open to the court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
(2) It is not open to the court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.
(3) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the court cannot interfere.
(4) If no specific question of law is referred, the decision of the arbitrator on that question is not final, however, much it may be within his jurisdiction and indeed essential for him to decide the question incidentally, In a case where a specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.
(5) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(6) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.
(7) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement.
(8) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.
(9) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes according to law.'
8. The Apex Court in Indu Engineering and Textiles Ltd, set out the following well recognised grounds on which interference is permissible :
(1) violation of the principle of natural justice in passing the award;
(2) error apparent on the face of the award;
(3) the arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature entertained; and
(4) the award on the face of it is based on a proposition of law which is erroneous, etc.'
9. Having reminded ourselves with the limitations on exercise of jurisdiction by the Court for setting aside or interfering with the award, let us first examine the first contention raised by the learned senior counsel for the appellants-Sumitomo that the claim of Sumitomo was based purely on interpretation of clauses in the contract which was a question of law and was specifically referred to the Umpire and in view thereof the decision of the Umpire, whether right or wrong could not be interfered with by the court under Section 30 of the Act of 1940. In order to see what exactly it was that was referred to the decision of arbitrators or for that matter to the Umpire we ought to look at the notice of intention and request for arbitration accompanying the said notice. The claim made by Sumitomo in request of arbitration reads: (i) Reimbursement by ONGC of such sums (including any interest) as Sumitomo shall have paid (at the date of the award in this arbitration) to MII or to the Indian tax authorities, in respect of either or both of (a) MII's tax liability for sums which it received pursuant to the sub-contract and/or (b) Sumitomo's own liability for such tax by virtue of its having protected the sub-contract for Indian tax purposes; (ii) alternatively, damages and/or an indemnity from ONGC in the like amounts; (iii) a declaration that ONGC is liable to reimburse to Sumitomo (and/or is liable for damages and/or indemnity in the like sum) any such further sum or sums as Sumitomo may pay to MII or the Indian tax authorities in this respect or in respect of Sumitomo's own tax liability for sums which it received pursuant to the contract and (iv) interest and costs. Notice of arbitration dated 6-3-1991 states that the dispute having arisen concerning tax liability, as per the agreement dated 23-8-1983 which provides for arbitration, notice of intention is given to appoint an arbitrator and appointed Mr. Robert A. Mac Crindle as their arbitrator. In the request for arbitration Sumitomo has set out its case and ultimately claimed the reliefs already noted above and in that connection referred to various clauses of contract viz. 5.11 (Laws/Regulations), 17.3 (Change of Law), 23-(Duties and Taxes), the provisions of Section 44BB of Income Tax Act, the facts relating to the assessment of MII, the sub-contract entered into by Sumitomo with MII and the relevant revised assessment orders of MIL
10. We have on consideration of the notice of intention to appoint arbitrator and the request for arbitration come to the conclusion that no specific question of law was referred for adjudication to the arbitrators nor the parties desired a decision on a specific question of law by the arbitrators or the Umpire. The dispute, in terms of notice of intention to appoint arbitrator, had arisen concerning tax liability - the details of which were given in the claim set out in request for arbitration - which without doubt reveals that no specific question of law was referred to the decision of arbitrators or for that matter Umpire - nor there is any reason to think that the parties had any specific question of law in mind at all. The parties wanted decision on the disputed issue of reimbursement of tax liability of sub-contractor met by Sumitomo. The arbitrators were not asked specifically to decide upon interpretation or construction of Clause 17.3 or Clause 23 or Clause 13.2.7 or these clauses together. The arbitrators were required to make an award on the claim made by Sumitomo concerning tax liability of sub-contractor on whatever questions of fact and law might emerge.
11. In F.R. Absalom, Limited v. Great Western (London) Garden Village Society, Limited, 1933 AC 592, Lord Wright observed thus:
'The rule was again restated with approval by Lord Dunedin giving the opinion of the Privy Council in Champsey Bhara and Co. v. Jivraj Balloo, etc., Co. (2) I know of no authority that limits its application so as to exclude cases in which a question of law must necessarily arise; indeed, if that were so, the rule would be in effect meaningless. The rule in truth applies to the ordinary case where, in the words of Lord Dunedin (3), the submission refers 'to the arbitrator the whole question where it depends on law or on fact.' To be contrasted with such cases there is the special type of case where a different rule is in force, so that the Court will not interfere even though it is manifest on the face of the award that the arbitrator has gone wrong in law. This is so when what is referred to the arbitrator is not the whole question, whether involving both fact or law, but only some specific question of law in express terms as the separate question submitted; that is to say, where a point of law is submitted as such, that is, as a point of law, which is all that the arbitrator is required to decide, no fact being, quoad that submission, in dispute. Such a case is illustrated by the Government of Kelantan v. Duff Development Co. (4), where Lord Cave L.C., whose opinion was that of the majority of this House, said (5): 'but where a question of construction is the very thing referred for arbitration, then the decision of the arbitrator upon that point cannot be set aside by the Court only because the Court would itself have come to a different conclusion.' This House held in that case that the only questions to be determined by the arbitrator, there being no facts in dispute, were the questions of law as to the construction of the contract. That decision followed In re King and Duven (1), in which Channell J. said, in distinguishing the case of the British Westinghouse Co. v. Underground Electric Rys. Co. (2): 'It is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside.' The learned judge shrewdly adds: 'otherwise it would be futile ever to submit a question of law to an arbitrator.'
Lord Russel of Killowen made these valuable observations:
'The crucial question upon this appeal appears to me to be this, to which class of cases does the present reference belong? Is it a reference in which a specific question of law was referred to the decision of the arbitrator as the sole tribunal, or is it a reference in which the questions of construction arise as being material in the decision of the matter which has been referred to arbitration? If the former the appeal must fail. If the latter it should succeed.
This is a question of some difficulty, as indeed it was in the Kelantan case. (1) In that case Lord Cave seems to have thought that a specific question of law had been submitted. Lord Trevethin thought not. Lord Parmoor thought it unnecessary to decide that point. In the present case I have on consideration come to the conclusion that no specific question of law was referred. The primary quarrel between the parties was whether, if the value of work executed and materials on site up to and including March 11, 1929, had been truly assessed, the net value available for certification on that date was in, excess of (as the contractor alleged) or less than (as the employer contended) the amount which had actually been certified up to and including that date -- namely, 94341. Those were the disputes which were the foundation of the suspension of work on the one hand and the service of the notice on the other. Those were the disputes 'in regard to the issue of certificates and the validity of notice' which were in general terms submitted to the arbitrator. No specific question of construction or of law was submitted. The parties had, however, been ordered to deliver pleadings, and by their statement of claim the contractor had claimed that the arbitrator should under his powers revise the last certificate issued so as to include therein the excess net value which they had alleged and which the arbitrator has found (though for a reduced amount) to have existed on March 11, 1929. It is at this point that the question of the construction of condition 30 arose as a question of law, not specifically submitted, but material in the decision of the matters which had been submitted. This question of law the arbitrator has decided: but if upon the face of the award he has decided it wrongly his decision is in my opinion open to review by the Court.'
12. The Apex Court in Thawardas v. Union of India, : [1955]2SCR48 of the report held thus:
'(11) In India this question is governed by Section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to remit an award for reconsideration 'where an objection to the legality of the award is apparent upon the face of it'.
This covers cases in which an error of law appears on the face of the award. But in determining what such an error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred.
If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature. See the speech of Viscount Cave in - 'Kelantan Government v. Duff Development Co. Ltd., 1923 AC 395 . But that is not a matter which arises in this case.
(12) The law about this is, in our opinion, the same in England as here and the principles that govern this class of case have been reviewed at length and set out with clarity by the House of Lords in - 'F.R. Absalom Ltd. v. Great Western (London) Garden Village Society', 1933 AC 592 (B) and in 1923 AC 395 .
In -- 'Durga Prasad v. Sewkishendas' , the Privy Council applied the law expounded in Absalom's case (B), to India: see also -- Champsey Bhara and Co. v. Jivraj Balloo Spinning andAIR 1923 PC 66 Weaving Co., and Saleh Mahomed Umer Dossal v. Nathoomal Kessamal . The wider language used by Lord Macnaghten in Gulam Jilani v. Muhammad Hassan, 29 Ind App 51 had reference to the revisional powers of the High Court under the Civil Procedure Code and must be confined to the facts of that case where the question of law involved there, namely limitation, was specifically referred.
An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by; the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Courts provided his error appears on the face of the award. The single exception to this is when the parties choose specifically to refer a question of law as a separate and distinct matter.
(13) Reference was made to a decision of this Court in -- A.M. Mair and Co. v. Gordhandass Sagarmull, : [1950]1SCR792 , where Fazl AH, J. quoted a passage from Viscount Simons speech in Heyman v. Darwins Ltd., 1942 AC 356 where the learned Lord Chancellor (Viscount Simon) in turn quoted from Lord Dunedin in another case. It was argued on the basis of this that if you have to have recourse to the contract to establish your case, then the dispute must fall within the arbitration clause.
That is undeniable but it is not enough that the dispute should fall within the clause. It is also necessary that the parties should define what the dispute is and agree to refer the dispute so set out and defined to arbitration, or, if they do not, that the Court should compel them to do so: (see Lord Macmillan in Heyman's case (H), just cited at pp. 369 and 370).
If, therefore, no specific question of law is referred, either by agreement or by compulsion, the decision of the arbitrator on that is not final however much it may be within his jurisdiction, and indeed essential, for him to decide the question incidentally. Lord Russel of Killowen and Lord Wright were both in the earlier case, 7935 AC 592 as well as in Heyman's case (H), and they would have pointed to any distinction had there been a likelihood of conflict : but in fact there is none and we do not read Fazl Ali J.'s judgment as a decision to the contrary.'
13. The same view has been expressed by the Apex Court in Alopi Parshad and Sons. Ltd. v. Union of India, : [1960]2SCR793 . The three Judge Bench of the Apex Court in paragraphs 16 and 17 held thus :
'(16) The extent of the jurisdiction of the court to set aside an award on the ground of an error in making the award is well-defined. The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous -- Champsey Bhara and Co. v. Jivraj _ Balloo Spinning and Weaving Co., Ltd. AIR 1923 PC 66. If, however, a specific question, is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of its being set aside, In re King and Duveen, 1913 2 KB 32 and Govt. of Kelantanv. Duff Development Co., Ltd. 1923 AC 395.
(17) Was the reference made by the parties to the arbitrators a specific reference, that is, a reference inviting the arbitrators to decide certain questions of law submitted to them? If the reference is of a specific question of law, even if the award is erroneous, the decision being of arbitrators selected by the parties to adjudicate upon those questions, the award will bind the parties. In the reference originally made to the arbitrators by the letter of the Agents on July 1, 1946, and the reply of the Government dated July 10, 1946, a general reference of the dispute was made in terms of Clause 20 of the agreement. Even though the award made on that reference was set aside by the Subordinate Judge, the arbitration was not superseded, and the reference was expressly kept alive, reserving an opportunity to the parties to appoint fresh arbitrators pursuant to the agreement, for settling the dispute: and by letters respectively dated August 2, 1952, and August 14, 1952, a general reference was again made to the arbitrators. Paragraph 14 of the letter written by the Agents on August 2, 1952, evidences an intention to serve the notice under Clause 20 of the agreement. Issues were undoubtedly raised by the arbitrators, but that was presumably to focus the attention of the parties on the points arising for adjudication. The Agents had made their claim before the arbitrators, and the claim and the jurisdiction of the arbitrators to adjudicate upon the claim were denied. The arbitrators were by the terms of reference only authorized to adjudicate upon the disputes raised. There is no foundation for the view that a specific reference, submitting a question of law for the adjudication of the arbitrators, was made.'
14. In Union of India v. A.L Rallia Ram, : [1964]3SCR164 , the Apex Court, in paragraphs 14 and 16 of the report, observed thus :
'(14) The argument advanced by the respondent that in the present case specific questions were referred to the umpire, and his decision on those questions must be regarded as binding and not liable to be re-opened, even assuming that there is some error on the face of the award, must therefore be examined. The arbitrators on July 16, 1948, called upon the parties to file their respective statements of claim and written statement. The respondents filed on August 16, 1948 an argumentative claim petition setting out in paragraph 22 the three heads under which he made a total claim of Rs. 5,95,518/13/-. To this claim, the Dominion of India filed a written statement denying the claims made by the respondent. A replication was filed by the respondent to the written statement. The arbitrators recorded that the parties had complied with the order, that issues had been proposed by counsel for the respondent, and that the parties were agreed that the dispute between them be tried on those issues. Then they set out ten substantive issues, and evidence was led before the arbitrators. The arbitrators recorded that they were unable to agree upon the decision, and therefore they submitted the case to the umpire R.B. Nathoo Ram. The umpire entered upon the reference, the evidence which was recorded before the arbitrators was accepted as evidence before the umpire, and the umpire proceeded to pronounce his award after recording reasons in support of his conclusions on the diverse issues which were raised before the arbitrators. But filing of pleadings pursuant to the directions of the arbitrators and agreeing to a trial of the dispute on the issues raised by the arbitrators cannot be regarded as reference of specific questions implying an agreement between the parties that they intended to give up their right to resort to the Courts even if the award was vitiated on account of an error apparent on the face thereof. The only permissible inference from the agreement recorded by the arbitrators was that the parties agreed to have the disputes adjudicated on the issues raised and not to submit the issues raised for adjudication. The terms of Clause 13 of the contract F.D. (M) 70 which incorporated the arbitration agreement are general. By his letter dated June 26, 1946, the respondent intimated the Director of Purchases that he had appointed an arbitrator on his behalf 'in accordance with Clause No. 13 of the general conditions of the contract' and the appointment of an arbitrator by the Union by their letter dated July 7, 1948, (subject to the reservation of a right to contend that there was no dispute) for adjudication of the claim made by the respondent. In these two cases, there is no reference to any specific questions to be referred to the arbitrators: nor can the filing of pleadings in support of their respective cases by the parties pursuant to the direction given by the arbitrators, and the framing of issues arising thereon with the object of focusing the attention of the parties on the question to be decided for adjudicating upon the dispute amount to a reference on specific questions, rendering the award binding upon the parties. In Thawardas Pherumal v. Union of India, : [1955]2SCR48 , Bose, J., delivering the judgment of the Court observed in dealing with the contention: that there was a reference of a specific question, and the award was not liable to be questioned even on the ground that it disclosed an error on its face.
'Therefore, when a question of law is the point at issue, unless both sides specifically agree to refer it and agree to be bound by the arbitrator's decision, the jurisdiction of the Courts to set an arbitration right when the error is apparent on the face of the award is not ousted. The mere fact that both parties submit incidental arguments about a point of law in the course of the proceedings is not enough.'
The learned Judge also observed at p. 59 (of SCR) : (at p. 475 of AIR) after referring to F. R. Absalom Ltd. v. Great Western (London) Garden Village Society Ltd., 1933 AC 592 :
'Simply because the matter was referred to incidentally in the pleadings and arguments in support of, or against, the general issue about liability for damages, that is not enough to clothe the arbitrator with exclusive jurisdiction on a point of law.'
In dealing with a similar question in Alopi Prasad and Sons Ltd. v. Union of India, : [1960]2SCR793 , the Court observed :
'Issues were undoubtedly raised by the arbitrators, but that was presumably to focus the attention of the parties on the points arising for adjudication. The Agents had made their claim before the arbitrators, and the claim and the jurisdiction of the arbitrators to adjudicate, upon the claim, were denied. The arbitrators were by the terms of reference only authorized to adjudicate upon the disputes raised. There is no foundation for the view that a specific reference, submitting a question of law for the adjudication of the arbitrators, was made.'
(16) Undoubtedly, under an arbitration agreement which is initially in terms general the parties may after disputes have actually arisen refer specific questions to arbitration. But each case must depend upon its facts. Filing of pleadings before the arbitrators, or even an agreement that certain issues arise on the pleadings will not always yield the inference that the parties agreed to refer specifically the questions incorporated in the issues to the arbitrator, so as to preclude themselves from challenging the award on the ground of error of law on the face of the award.
(16a) The test indicated by Lord Russel of Killowen in 1933 AC 592 adequately brings out the distinction: between a specific reference of a question of law, and a question of law arising for determination by the arbitrator in the decision of the dispute. It was observed at p. 607 :
'x x, it is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision, x x x x The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when any error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground that it so appeal's that the decision upon the question of law is an erroneous one.' Then after referring to the authorities it was observed at p. 610:
'x x x The primary quarrel between the parties was whether, if the value of work executed and materials on site upto and including March 11, 1929, had been truly assessed, the net value available for certification on that date was in excess of (as the contractor alleged) or less than (as the employer contended) the amount which had actually been certified up to and including that date x x x Those were the disputes 'in regard to the issue of certificates and the validity of the notice' which were in general terms submitted to the arbitrator. No specific question of construction or of law was submitted. The parties had, however, been ordered to deliver pleadings, and by their statement of claim the contractor had claimed that the arbitrator should under his power revise the last certificate issued so as to include therein the excess net value which they had alleged and which the arbitrator has found for a reduced amount) to have existed on March 11, 1929. It is at this point that the question of the construction of condition 30 arose as a question of law, not specifically submitted, but material in the decision of the matters which had been submitted. This question of law the arbitrator has decided; but if upon the face of the award he has decided it wrongly his decision is in my opinion open to review by the Court.'
15. Though each case must depend on its own facts, the consistent legal position emerges thus : The decision of the arbitrator on a question of law specifically referred, right or wrong, is final and binding on the parties. Such specific question of law referred must be either by agreement or by compulsion. If, on the other hand, no specific question of law is referred, the decision of the arbitrator is not final, however much it may be within his jurisdiction, and indeed essential for him to decide the question incidentally. By question of law specifically referred what is meant and understood is separate question expressly referred. In our view, therefore, in the light of the facts of the present case, particularly with reference to the notice of intention and request for arbitration it can safely be held that no specific question of law was referred to the arbitrators or for that matter to the Umpire by the parties either under agreement or by compulsion nor did the parties desire a decision on a specific question of law.
16. We may, now, refer to the decisions heavily relied upon by Mr. Tulzapurkar in support of his argument that specific question of law was referred to the arbitrators/Umpire for adjudication. In Kapoor Nilokheri Co-op. Dairy Farm Society Ltd. v. Union of India and Ors., : AIR1973SC1338 of the report the Apex Court observed thus:
'12. Mr. Nariman, the Additional Solicitor General, appearing on behalf of the respondents also contended that the appellants having specifically stated that their claims are based on the agreement and on nothing else and all that the arbitrator had to decide was as to the effect of the agreement, the Arbitrator had really to decide a question of law, i.e. of interpreting the document, the agreement of 6-5-53 and his decision is not open to challenge. We agree with him: see the decisions in Durga Prasad v. Sewkishendas and Ghulam Jilani v. Muhammad Hassan, (1901) 29 Ind App 51'
M/s Kapoor Nilokheri Co-op. Dairy Society Ltd. (supra) cannot be read to be an authority for the proposition that where no separate question of law is referred for adjudication by the arbitrator, it can be said that specific question of law was referred for adjudication. The case turned on its own facts. In a subsequent decision in Tarapore and Company v. Cochin Shipyard Ltd., Cochin and Anr., : [1984]3SCR118 the Apex Court while considering M/s Kapoor Nilokheri Dairy Farm Co-op. Society Ltd. in paragraph 23 of the report observed thus :
'23. In Kapoor Nilokheri Co-op. Dairy Farm Society Ltd. v. Union of India, : AIR1973SC1338 the Court agreed with the submission on behalf of the respondent Government of India that the appellants having specifically stated that their claims are based on the agreement and on nothing else and all that the arbitrator had to decide was as to the effect of the agreement, the arbitrator had really to decide a question of law, i.e. of interpreting the document, the agreement dated May 6, 1953 and therefore the decision is not open to challenge. In fact this decision is hardly of any assistance and we leave it at that.'
17. Insofar as the judgment of the Apex Court in M/s Tarapore and Co. is concerned, it would be clear from the perusal of paragraph 5 of the report that specific and separate question (1st question) was referred by the parties to the sole arbitrator.
18. As regards the decision of the Division Bench of this Court in Sterling Wilson Electricals Private Limited v. Reserve Bank of India, decided on 9/10-8-1994 upon which strong reliance was placed by Mr. Tulzapurkar is concerned, we find that before the Division Bench an argument was advanced that unless both sides specifically agree to refer and agree to be bound by the decision, specific question of law cannot be said to be referred for determination of the arbitrator. The Division Bench negatived the said submission by referring to the two judgments of the Apex Court in Taraporewalla's case (supra) and U.P. Hotels (supra). The Division Bench observed thus. 'In our judgment it is futile to suggest that the question cannot be treated as specifically referred unless and until both sides specifically agree to refer and agree to be bound by the arbitrators' decision. In our limited experience, we have never come across any arbitration reference where the party agrees to such kind of specific question to be referred.'.
It would be thus seen that the judgment of the Division Bench in Sterling Wilson Electricals Pvt, Ltd. turned on the facts arid circumstances obtaining therein. Insofar as the present case is concerned, we have no hesitation, for the reasons which we have indicated already above, that there was no specific question of law in express terms as a separate question referred for adjudication by the arbitrators and, therefore, it is not correct to say that whatever be the decision of the Umpire, right or wrong, it was not open to the Court to interfere with the said award.
19. The second submission made by Mr. Tulzapurkar that Sumitomo's claim depended on the interpretation of the clauses of the contract and, therefore, as regards the challenge to the decision of the Umpire, the same stood on the same footing as the issue of law specifically referred to the Umpire and hence beyond the purview of challenge under Section 30 of the Indian Arbitration Act can hardly be accepted. The well recognised grounds for interference by the Court in the award passed by the arbitrator (or the Umpire) have already been stated by us. If the case is made out within the said limitations and well recognised grounds for interference, it is within the competence of the Court to interfere with such award. As the specific question of law was not referred for adjudication by the agreement of the parties or compulsion to the arbitrators (or Umpire) merely because the claim made by Sumitomo was required to be decided incidentally on interpretation of the clauses of the contract, it cannot be said that the question of law was referred specifically for arbitration or the same stood on the same footing as the issue of law specifically referred. U. P. Hotels case upon which strong reliance was placed by Mr. Tulzapurkar does not help the appellants at all. In that case the Apex Court found that the view taken by the Umpire on the interpretation of the agreement between the parties in the light of the observations in Indian Aluminium Co.'s case, : [1976]1SCR70 was at best a possible view. Rather the Supreme Court held that Umpire committed no error in arriving at the decision. The second contention of the learned senior counsel for the appellants, therefore, also has no merit and cannot be accepted.
20. The contention raised by Mr. Tulzapurkar that there was no erroneous proposition of law on the face of the award and that the construction placed on Clause 17.3 by the Umpire was a possible construction and not an impossible one is not meritorious. In paragraph 6.3 the Umpire observed thus:
'6.3 The correct and convenient course is to answer these questions first by reference to the wording of Clause 17.3 on its own and then to go on to consider whether they require to be modified in the light of the context of the other provisions of the Contract and/or any relevant surrounding circumstances. This was also the approach adopted by both parties.'
The Umpire, it would be seen, proceeded to approach the claim of Sumitomo by finding out whether it is covered by Clause 17.3 on its own or not. Only thereafter he thought fit to refer to other clauses of the contract. This approach of the Umpire is wholly fallacious and in utter disregard of well known principles of construction of agreements. It is well established law that all clauses of the agreement must be read together and given due meaning to find out the intention of the parties. One clause in a contract cannot and should not be read in isolation to other clauses of the contract. The contract must be construed as a whole and effect must be given to all the terms and endeavour must be made to reconcile inconsistencies by the rules of construction. With the approach to find out whether the claim of Sumitomo is covered by Clause 17.3 of the agreement entered into between the parties, the Umpire though noted various clauses of the contract yet refused to construe various clauses and give due consideration to them in the right perspective to find out whether it was the intention of the parties that ONGC would reimburse the tax liability which Sumitomo's sub-contractor may have to incur. On the face of the various clauses of the contract it is apparent and clear that ONGC could not have been made liable for reimbursement of the tax liability which Sumitomo's sub-contractor had to incur and Sumitomo had to reimburse to their sub-contractor. In this connection, we may refer to the relevant clauses of the agreement between Sumitomo and ONGC. Clause 13.2.7 of the contract provides thus:--
'13.2.7 The Company shall not be responsible/obliged for making any payments or any other related obligations under this Contract to the Contractor's Sub-contractor/Vendors. The Contractor shall be fully liable and responsible for meeting all such obligations and all payments to be made to its Sub-contractors/Vendors and any other third party engaged by the Contractor in any way connected with the discharge of the Contractor's obligation under the Contract and in any manner whatsoever.'
21. Clause 3.2 of the Contract provides for conditions for subcontracting and the Sub-clause (iii) thereof provides thus, 'subcontracting as mentioned herein shall not relieve the Contractor of his obligations and responsibilities under this Contract'.
22. Clause 8.6 of the Contract provides for certificate of completion and acceptance of the work and Clause 13.3 provides for issuance of discharge certificate. Particularly Clause 13.3.4 reads thus:
'13.3.4 Neither the Company nor the Contractor shall be liable to the other for any matter or thing arising out of or in connection with the contract or the doing of the works unless the party asserting the liability has given the other party written notice of its claim before the issue of the last Discharge Certificate under this Clause.'
23. Clause 17.3 reads thus:
'17.3 Change of Law
Should there be, after the date of bid closing a change in any legal provision of the Republic of India or of any political subdivision thereof or should there be a change in the interpretation of the said legal provision by the Supreme Court of India and/or enforcement of any such legal provision by the Republic of India or any political subdivision; thereof which affects economically the position of the Contractor; than the Company shall compensate contractor for all necessary and reasonable extra cost caused by such a change.'
24. Clause 23 of the Contract provides that ONGC shall bear all Indian Income taxes levied or imposed on Sumitomo under the Contract and all Indian custom duties levied upon fabricated structures etc. are to be borne by ONGC. Clause 23 reads thus:
'23.0 Duties and Taxes
Indian Customs Duties, if any, levied upon fabricated structures, sub-assemblies and equipment and all components which are to be incorporated in the works under the contract shall be borne by the company. The company shall bear all Indian income taxes levied or imposed on the Contractor under the Contract, on account of its or their offshore personnel while working at offshore or on account of payments received by Contractor from the company for work done under the contract. Notwithstanding the foregoing, the company shall have no obligation whatsoever in respect of the Contractor's onshore employees whether they may be expatriate or nationals.'
25. Clause 27.2 provides thus:
'27.2 The Company shall in no event be responsible for or liable to the contractor or its Sub-contractors for consequential damages suffered by the Contractor or its Sub-contractors including without limitation, business interruption or loss of profits. Whether such liability is based or claimed to be based upon (i) any breach by the Company of its obligations under the Contract or (ii) any negligent act or omission on the part of the Company or any of its employees, agents or appointed representative in connection with the performance of the work.'
26. Clause 13.2.7 which we have quoted above in its plain and clear terms provides that ONGC shall not be responsible for making any payments or any other related obligations under this contract to the contractor's subcontractor/ vendors and that Sumitomo shall be fully liable and responsible for meeting all such obligations and all payments to be made to sub-contractor/vendors. This clear and unequivocal stipulation contained in Clause 13.2.7 reflects the intention of the parties that ONGC was not to be made responsible for any payment that Sumitomo may have to make to their sub-contractors and all obligations of subcontractor shall have to be fully met by Sumitomo. On the face of such specific Clause of prohibition that ONGC shall not be responsible for making any payment or other related obligations under this contract to the sub-contractors, how could the claim of Sumitomo for reimbursement of taxes be covered under Clause 17.3 in the garb of change in economic position of Sumitomo under the contract because of change in Income Tax laws subsequently. The view of the Umpire that Sumitomo's claim is covered under Clause 17.3 on the face of various clauses of the contract, particularly 13.2.7 by no stretch of imagination can be said to be plausible or possible view. The only possible view on construction of all the clauses of the contract, particularly referred to hereinabove, could be that ONGC cannot be held liable for reimbursement of the claim of tax liability made by Sumitomo's sub-contractor to Sumitomo. If the intention of the parties was that ONGC should reimburse the claim made by Sumitomo's sub-contractor towards income tax liability, obviously the parties would have made specific stipulation in the contract in that regard. It cannot be overlooked that the contract between the ONGC and Sumitomo is bipartite contract and Sumitomo's sub-contractor were not parties to this contract. By separate contract entered into between Sumitomo and its sub-contractor if Sumitomo had undertaken to meet income tax liability imposed on sub contractor, such liability could not be fastened on ONGC by relying on Clause 17.3 when there is a specific Clause 13.2.7 stipulating that ONGC shall not be liable for making payment to the subcontractors and it will be the sole responsibility of Sumitomo. Under the Contract between ONGC and Sumitomo, the liability of ONGC was to indemnify Sumitomo only for the taxes levied on Sumitomo as provided under Clause 23 or for any adverse economic burden on Sumitomo due to change in law and if Sumitomo by way of settlement with their sub-contractor agreed to pay and in fact paid any amount to them towards the tax liability incurred by sub-contractor, the burden of liability could not be fastened on ONGC as such claim of Sumitomo shall not be covered by Clause 17.3. The award passed by the Umpire thus suffers not only from erroneous proposition of law but also the view taken by him was not plausible and possible as it ran counter to the specific clauses of the agreement. As a matter of fact, on the face of the specific prohibition clause contained in Section 13.2.7, the stand set up by ONGC that the Umpire exceeded his jurisdiction by awarding the claim of Sumitomo under Clause 17.3 cannot be said to be without substance. It is clear, for the reasons which we have indicated above, that the Umpire misdirected himself by not giving due effect to the various clauses in the agreement which clearly negate the claim of Sumitomo. The Umpire in his award on its face noted erroneous proposition of law relating to construction of contracts and ignored well settled principles when he observed that he would analyse Clause 17.3 of the agreement first to examine Sumitomo's claim. The Umpire further erred in law by refusing to put a narrow interpretation on the indemnity Clause 17.3. Clause 17.3 being indemnity clause should not have been given wider interpretation. The indemnity clause should be construed strictly, analogously to an exemption clause. The Umpire overlooked the commercial principle that every business venture carries its own risk. He ignored the effect of settlement arrived at between Sumitomo with MII behind ONGC's back. The learned Single Judge in the circumstances cannot be said to have erred in interfering with the award passed by the Umpire as, in our view, the view taken by the Umpire that the claim made by Sumitomo is covered under Clause 17.3 is not a possible or plausible view. Though Mr. Tulzapurkar, the learned senior counsel appearing for the appellants submitted that the contention of the learned senior counsel for ONGC that the award is contrary to the various express terms of the contract and, therefore, jurisdictional error was committed by the Umpire was not raised specifically in the petition nor such argument was specifically advanced before the learned Single Judge and such ground being a separate and distinct ground cannot be allowed to be raised for the first time in appeal, we find it difficult to be persuaded by the said submission of Mr. Tulzapurkar. We find that in the petition challenging the award, ONGC has set up the ground that the Umpire acted contrary to the basic and obvious features of the contract and that the Umpire deliberately departed from the contract. The written submissions tendered to the learned Single Judge also show that an argument was advanced on behalf of ONGC that Umpire failed to apply his mind to pleadings, documents and the evidence as well as to particular clause of the contract. In Rajasthan State Mines and Minerals Ltd. (supra) in paragraph 46 the following view was expressed:
'46. Lastly, we would mention a few other contentions raised by the learned counsel for the respondent which are required to be stated for rejection. His contention that the arbitrator has acted beyond his jurisdiction was not raised before the District Court as well as before the arbitrator, is without any substance. Surprisingly, to say the least, the High Court as well as the District Court observed that no specific contention with regard to the jurisdiction was raised before the arbitrator. It appears that the High Court and the District Court had not considered the written statement filed by the appellant before the arbitrator. The District Court has also raised Issues 5 to 8 quoted above, which would cover the contention raised by the appellant. The issue whether the award is perverse and that the arbitrator failed to apply his mind to pleadings, documents and evidence as well as Clauses 17 and 18 of the agreement would cover the contention that the arbitrator acted beyond his jurisdiction in ignoring the stipulations of the contract. With regard to the Committees report on which the learned counsel for the respondent has relied upon, it had been pointed out by the learned counsel for the appellant that the said report was specifically rejected by the Board of the appellant. Hence, it would have no bearing on the award which was to be passed by the arbitrator.'
It may thus be said that the contention that the Umpire exceeded his jurisdiction in awarding Sumitomo's claim under Clause 17.3 of the agreement would be covered under the ground that the award was perverse and that he failed to apply his mind to the pleadings, documents and the evidence as well as particular clause of the contract. The judgment of the Supreme Court in Bijendra Nath Srivastava (Dead) through LRs. v. Mayank Srivastava and Ors., : AIR1994SC2562 has no application on the facts in hand. We have no hesitation in holding that Clauses 13.2.7 and 23 clearly negate the claim of Sumitomo and, therefore, the view of the Umpire in not giving due effect to the said clauses has resulted in the view which cannot be said to be possible or plausible view.
27. Now we advert to the submission of Mr. Banerji. He challenged the finding of the learned Single Judge in respect of the applicability of Section 44BB of the Income Tax Act.
28. The learned Single Judge while considering the said question whether revised assessment done in the case of sub-contractor-MII was referable to the provisions of Section 44BB or not, held thus:
'Insofar as, the contract between the respondent and the sub-contractor is concerned, there is an element of sale. It is not entirely an agreement for providing services or facilities. It is not also an agreement only for supplying plant and machinery on hire. The learned Umpire has, however, held that 99.9 percent of the contract constitutes providing of facilities and therefore, according to the Umpire, provisions of Section 44BB are attracted. In my opinion, for considering whether provisions of Section 44BB would be attracted in relation to a contract, totality of the contract has to be taken into consideration. If the contract involves any element of sale, then provisions of Section 44BB would not be attracted. Even perusal of the revised assessment of tax done in case of the subcontractor, which has been quoted in paragraph 4.9 of the award of the Umpire, shows that it cannot be an assessment under the provisions of Section 44BB of the Act. It is common ground before me that provisions of Clause (b) of Sub-section 2 of Section 44BB are not attracted in the present case and that the case of the sub-contractor would be governed by Clause (a) of Sub-section (2). Perusal of that provision shows that for the purpose of that section, the amount paid or payable, whether in or out of India, to the assessee in relation to the work done in India is only relevant. For the purpose of that clause, therefore, whether the amount has been paid i.e. whether it has been paid in or out of India is not relevant. Perusal of paragraph 4.9 of the award of the Umpire, however, shows that the amounts received for the work done in India are mentioned separately and the profit earned on that amount has been taken out separately. Similarly, the amounts received for work done outside India have been taken separately and deemed profit on that amount has been taken separately. It is thus, clear that the assessment done in relation to amounts received for work done outside India is totally irrelevant. In the present case, as stated above, it is common ground that no work of extraction of mineral oils was done outside India. It is further to be seen here that it is clear from the assessment order that the assessment of the sub-contractor was done under a circular issued by the department and assessment under the circular was pursuant to an option exercised by the sub-contractor. It is clear from the circular that it did not operate by its own force. Though the learned counsel appearing for the respondent argued before me that no amount of tax as such is charged under the circular and that the entire assessment is done under Section 44BB. The learned Umpire has, however, in paragraph 5.5 (6) of his award has observed thus:
'I agree that the Circular is badly phrased, and I have already pointed out that we may not have its final text. The Circular was not independent from Section 44BB but based on its then recent enactment. The description of the target operations in its paragraph 2 is precisely in line with Section 44BB and with contracts such as the subcontract in the present case. The purpose of the Circular was to deal administratively with one aspect which had been left uncovered by Section 44BB. This concerned the allocation of some notional taxable profit to the sale or transfer of property within fiscal India of any facilities whose design, engineering, procurement and fabrication had taken place outside fiscal India. It was decided that the solution to this limited problem lay in a process of allocation which was permitted by Section 9(1) and Explanation (a) of the Income Tax Act 1961. For reasons of uniformity and simplicity it was decided to fix this allocation: on the basis of 10% of the 10% prescribed by Section 44BB. The option in paragraph 9 of the circular was only intended to apply to this element of an additional 1% : not to the 10% prescribed by Section 44BB, which are mandatory.' 29. It is thus clear that, according to the Umpire, 1% tax was charged under the circular which according to the learned Umpire covers an area which is not covered by Section 44BB. In my opinion, therefore, there is some room to assume that the award made by the learned Umpire in relation to applicability of Section 44BB of the Act is not entirely right. However, I find that the conclusion that is reached by the learned Umpire on this aspect cannot be termed as impossible conclusion. .....'
29. Mr. Banerji, the learned senior counsel, contended that Section 44BB has no application to the assessment of the sub-contractor-MII and there was no change in law as the sub-contractor was assessed under the circular issued in the month of July 1987. According to Mr. Banerji, once the learned Single Judge held that there was an element of sale and that revised assessment of MII was not under the provisions of Section 44BB and that the award passed by the Umpire was not entirely right, the conclusion of the learned Single Judge regarding applicability of Section 44BB that the award could not be termed as impossible was erroneous. He submitted that the learned Single Judge coined the new expression that the conclusion arrived at by the Umpire was not an impossible conclusion which is not the requirement of the law. He also contended that Umpire's attempt to supplement the charging Section 44BB by altering the formula and by adding 1% as a rough and ready measure is contrary to all legal and taxing principles. According to Mr. Banerji, revised assessment of MII was not a case of Mandatory assessment under Section 44BB. We find ourselves unable to agree with the submissions of Mr. Banerji in this regard. The reason for saying so is that Umpire in the present arbitration proceedings could not have sat as an appellate authority over the revised assessments done by the authorities under the Income Tax Act. The fact is that the site where work was carried out was not within the territory of India for the purpose of Indian tax laws prior to 1-4-1983. Accordingly prior to 1-4-1983, no income tax was payable by non-resident companies. With effect from 1-4-1983 the limits of territorial waters were extended, as a result the income tax Act, 1961 became applicable with effect from 1-4-1983. Under the Finance Act, 1987 the new Section 44BB was introduced in the Income Tax Act, 1961 with retrospective effect from 1-4-1983. As a result thereof income tax became payable by MII, The Income Tax Authorities issued notice to the subcontractor-MII for revision of their assessment for the years 1984-85 and 1985-86 and accordingly revised the sub-contractors assessment for the aforesaid years. The relevant extracts of the assessment orders has been quoted by the Umpire in the award which read thus :
'Sub-clause (a) and (b) contain the words used or to be used, which also clearly indicate that, the words the services or facilities tendered or provided in connection with the three main activities, are meant to include both before the actual operation and during the operation and during the operation of prospection, extraction or production though before actual operation of prospection etc., are duly covered and are rightly considered for liability to tax under Section 44BB of the Act. Sub-clause (a) of Sub-section (2) of Section 44BB provides for the inclusion of the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in computing the profits under this Section. The income-tax paid by the main contractor is on behalf of the assessee, which has been so undertaken for the various services provided by the assessee in its capacity as a sub-contractor to the main contractor, who had in turn rendered the services or provided the facilities, in connection with the prospecting for, extraction of or for production of mineral oils. Therefore, on a plain reading of Sub-clause (a) of Sub-section (2) of Section 44BB of the Act, the taxes paid on its behalf has to be considered in the computation of the profits and gains under this section.
Since, the amount of tax so paid, is to be initially added to the receipts of the assessee, the aggregate amount of which would be treated as the total receipts and the factor of income have to be limited to ten percent of this aggregate. The addition of tax is to be done once at the beginning only....'
The said assessment orders are under challenge at the instance of MII before Income Tax Tribunal and, therefore, we refrain from expressing any opinion about their correctness, but suffice it to say that the assessing authority referred to and relied upon Sub-clause (a) of Sub-section (2) of Section 44BB for imposing the tax liability upon MIL In view thereof, the construction put by the Umpire on Section 44BB insofar as its applicability to the sub-contractor is concerned, cannot be said to be not possible. The argument advanced by Mr. Banerji that Section 44BB has no application to the assessment of MII and that sub-contractor was not liable to revised assessments by making applicable Section 44BB may have some merit : there may also be substance in the submission that revised assessment of MII was not a case of mandatory assessment under Section 44BB but if the Umpire relied upon the reasoning of the assessing authority in holding that Section 44BB is applicable to subcontractor, it cannot be said that the view expressed by the Umpire with regard to applicability of Section 44BB is not a possible view. We do not attach much importance to the criticism that learned Single Judge applied erroneous test of impossibility of the view of Umpire before it could be set aside. We have already noted that the view of the Umpire that revised income tax assessment of MII for the years 1984-85 and 1985-86 was referable to Section 44BB takes colour from the reasoning of the assessing authority and surely, therefore, a possible view. Thus, we overrule the submission of the learned senior counsel for ONGC in challenging the finding of the learned Single Judge with regard to applicability of Section 44BB of Income Tax Act, 1961.
30. In the result, appeal filed by Sumitomo has no merit and is dismissed with no order as to costs.